An SMSF loan or Limited Recourse Borrowing Arrangement (LRBA) allows you to leverage the funds in your self-managed super fund (SMSF) to purchase an investment property. This can be used to purchase commercial or residential property. The rental income is required to pay off the loan, and any excess return is reinvested into the SMSF.
SMSF loans have higher rates than traditional home loans and are only offered by a selection of lenders. This is because if your fund defaults on the loan repayments, only that single property can be reclaimed by the lender and any funds or rental income in the SMSF cannot be claimed to compensate for the debt.
Once the loan balance has been paid off in full, the legal title to the property will be to the SMSF. At this point, your SMSF can continue receiving rental payments or the property can be sold off with sale proceeds being transferred into the SMSF.
Your borrowing power will depend on your contributions to your SMSF and your balance. With Oceania you can borrow up to 90% in your SMSF for residential property and up to 80% for commercial property.
You can boost your super by adding your own personal contributions (amounts you contribute directly to your SMSF). Personal contributions are in addition to any compulsory super contributions your employer makes on your behalf and do not include super contributions made through a salary-sacrifice arrangement.
Concessional contributions are any of the contributions paid into your super account that receive a concessional (lower) tax rate. You can claim a tax deduction for contributions of up to $27,500 per financial year. Your concessional contributions are from your pre-tax income and are taxed in the fund at a rate of 15% (compared to income which is taxed at a marginal rate between 19% – 45%).
If your total superannuation balance is less than $500K, there may also be an opportunity to utilise your carry forward unused concessional contribution caps. Allowing you to access any unused concessional contribution amounts from the last five financial years (so up to $137,500 can potentially be claimed as a tax deduction).
Non-concessional contributions are personal contributions that you aren’t claiming a tax deduction for. They are tax-free contributions, however, they are capped at $110K per financial year (as long as your superannuation balance is less than $1.9M). If you’re under the age of 75, you can contribute up to $330K, providing your super balance is less than $1.9M and there are no further contributions in the following 2 financial years. Non-concessional contributions are not included in the assessable income of the Fund and are therefore tax-free contributions.
If you are 55+, you can contribute up to $300K from the proceeds of the sale (or part sale) of your home into your SMSF. A downsizer contribution is a non-concessional contribution, but it doesn’t count towards the contribution cap.
Applying for an SMSF loan involves several steps, including establishing an SMSF with the assistance of a registered SMSF provider, identifying suitable properties for investment, obtaining loan pre-approval from a lender specialising in SMSF loans, and ensuring compliance with legal and regulatory requirements throughout the process.
Our team of SMSF specialists can assist you with this process.
Yes, you can refinance an SMSF loan, as long as you aren’t in arrears and have met repayments for the last 12 months.
Current income of the SMSF based on the most recent tax return and management accounts, plus the proposed income (if purchasing a new property versus refinancing an existing loan).
There must be sufficient income in the SMSF to support the loan.
The majority of banks do not lend to super funds to buy investment properties because of the smaller size of the market, the complexity of trust loans and because the lender’s recourse is limited to the asset itself.
We recommend that you apply for the loan at least 2 weeks before you begin looking for a property.
Borrowing in an SMSF is more complicated than applying for a normal home loan.
We find that many of our clients take up to a week to collate the supporting documents required to apply for the loan, and then it often takes another week to assess and accept the application.
Your SMSF can buy a commercial property that you already own, however it can’t buy a residential property that is owned by you or a related party.
The penalties can include paying a large percentage of your superannuation fund balance as a penalty tax – so it is best to get good advice from the outset.
We recommend that you discuss any potential tax implications of transferring a property from your name into your SMSF with an accountant that specialises in Self-Managed Superannuation Funds.
Terms & Conditions
Rates shown apply to eligible SMSF home loans only (<60% LVR, loan amount up to max of $2,000,000). Rates are subject to change without notice. Terms, conditions, and eligibility criteria apply. Comparison rates are based on a $150,000 loan amount over a 25 year period (it may not include all fees and charges).
Notes
The information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on this information.
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